1. What is APR?

The Annual Percentage Rate (APR) represents the true cost of borrowing, including interest and fees, expressed as a yearly rate. It provides a standardized way to compare loan offers.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( PMT \) — Monthly payment amount ($)
• \( n \) — Number of months in loan term
• \( P \) — Principal loan amount ($)

Explanation: The equation calculates the annualized cost of credit as a percentage of the principal amount.

3. Importance of APR Calculation

Details: APR helps borrowers compare different loan offers on an equal basis, revealing the true cost of loans that might have different fee structures or payment schedules.

4. Using the Calculator

Tips: Enter the monthly payment amount, number of months in the loan term, and the principal amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is APR different from interest rate?
A: Interest rate only reflects the cost of borrowing principal, while APR includes fees and other loan costs.

Q2: What is a good APR?
A: This depends on creditworthiness and loan type. As of 2023, average APRs range from 3-5% for mortgages to 15-25% for credit cards.

Q3: Does this calculator work for credit cards?
A: This simplified calculator is best for installment loans. Credit card APRs involve more complex calculations.

Q4: Why does my calculated APR differ from the lender's stated APR?
A: Lenders may include additional fees in their APR calculation that aren't accounted for in this basic formula.

Q5: Can APR be negative?
A: Normally no, unless you're receiving a rebate or other benefit that makes the total cost negative.